Leave Encashment is Taxable
This query is : Resolved
23 November 2019
Please let us know the Leave Encashment is Taxable on resignation for Private Employees
23 November 2019
The income tax applicability for leave encashment for private employees is subject to tax . But Exemption to certain extent is available under Section 10(10AA): The related provisions are given below.
A part of the leave encashment income at the time of superannuation or resignation is exempt from income tax payment. This exemption is applicable to the lowest of the below amounts:
Rs. 3 lakh
Actual leave encashment amount
Average salary (basic salary + dearness allowance) of the last 10 months before the employee’s retirement or resignation
Cash equivalent of pending leave days. The leave basis is a maximum of 30 days leave for every year of service.
I explain with the example.
Leave salary earned : Rs.720000
Basic + DA - 36000
Number of years of service : 25
no of days eligibility per year : 30 days
Leave salary days : 200 days
Act
Whichever is lower of the following
1. rS.3,00,000
2. Rs.7,20,000 ( 200 days x rs.36000)
3. 10 Months x rs.36000 = rS.3,60,000
4. 25 Years x 30 days = 750 days less availed 550 days = 200 days x 1200 ( 36000/30) = 240000
Exemption amount lowest of the above is Rs.240000 and taxable amount is for Rs,480000 ( 720000-240000)
The income tax applicability for leave encashment for private employees is subject to tax . But Exemption to certain extent is available under Section 10(10AA): The related provisions are given below.
A part of the leave encashment income at the time of superannuation or resignation is exempt from income tax payment. This exemption is applicable to the lowest of the below amounts:
Rs. 3 lakh
Actual leave encashment amount
Average salary (basic salary + dearness allowance) of the last 10 months before the employee’s retirement or resignation
Cash equivalent of pending leave days. The leave basis is a maximum of 30 days leave for every year of service.
I explain with the example.
Leave salary earned : Rs.720000
Basic + DA - 36000
Number of years of service : 25
no of days eligibility per year : 30 days
Leave salary days : 200 days
Act
Whichever is lower of the following
1. rS.3,00,000
2. Rs.7,20,000 ( 200 days x rs.36000)
3. 10 Months x rs.36000 = rS.3,60,000
4. 25 Years x 30 days = 750 days less availed 550 days = 200 days x 1200 ( 36000/30) = 240000
Exemption amount lowest of the above is Rs.240000 and taxable amount is for Rs,480000 ( 720000-240000)
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